Pension & Benefits News IRS provides revised opinion letter procedures for 403(b) pre-approved plans
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Monday, September 27, 2021

IRS provides revised opinion letter procedures for 403(b) pre-approved plans

By Pension and Benefits Editorial Staff

The IRS has released revised procedures for issuing opinion letters to Code Sec. 403(b) pre-approved plans for the second remedial amendment cycle (Cycle 2). The submission period is set for providers and mass submitters to submit on-cycle applications for Cycle 2 opinion letters starting on May 2, 2022 and ending on May 1, 2023.

The procedures also provide rules for determining when remedial amendment periods expire for 403(b) pre-approved plans. The IRS explains that many of the changes reflect improvements in the current Code Sec. 401(a) pre-approved program as well as providing other new enhancements. Highlights of these changes include:

  • Extension of the deadline to adopt interim amendments for a change in 403(b) plan requirements. Most 403(b) plans will have until the end of the second calendar year following the calendar year in which the change is effective.
  • Provision of a new determination letter program for amended pre-approved plans on Form 5307 (Application for Determination for Adopters of Modified Volume Submitter Plans), similar to the current Code Sec. 401(a) pre-approved program.
  • Provision of details on the system of remedial amendment periods that follows the initial remedial amendment period.
  • Replacement of prototype and volume submitter plans with a single opinion letter program.
  • Provision that the IRS will issue a Cumulative List identifying the 403(b) plan requirements that the IRS will review in plans submitted for each cycle.

Similarities to 401(a) pre-approved plan program. The IRS notes that the 403(b) pre-approved plan program provisions regarding reliance on an opinion letter have been made more similar to the provisions applicable under the Code Sec. 401(a) pre-approved plan program. The similarities include provisions that permit the submission during the employer adoption window of an application for a determination letter using Form 5307 by an adopting employer of a nonstandardized plan that makes amendments to the plan that are not extensive, or by an adopting employer of any 403(b) pre-approved plan (whether a standardized plan or a nonstandardized plan) that adds language to satisfy Code Sec. 415 due to the required aggregation of plans.

Deadline dates. The IRS is extending the plan amendment deadline for making interim amendments concerning a change in Code Sec. 403(b) requirements, for most plans, until the end of the second calendar year following the calendar year in which the change in Code Sec. 403(b) requirements is effective for the plan.

The procedures set the date on which the limited extension of the initial remedial amendment period expires and extends the deadline for adopting an initial amendment (if applicable) that is required under certain circumstances in order for the limited extension of the initial remedial amendment period to apply.

Pre-approved retirement income account plans. Employees of certain church-related organizations that are described in Code Sec. 414(e)(3)(B) are allowed to participate in a pre-approved retirement income account (RIA) plan for Cycle 2. Also, a Cycle 1 pre-approved RIA plan may be retroactively amended to July 1, 2020 to permit the participation of these same employees. An amendment to the Cycle 1 plan done in good faith does not affect an employer’s ability to continue to rely on the Cycle 1 opinion or advisory letter. However, there will be no reliance on the amendment itself.

Application forms. The procedures include an application for approval of 403(b) pre-approved plan in Appendix A and information on where to file applications. The IRS states that it is developing the application form for an opinion letter and will announce when the form becomes available. If the application form is available when the application is being submitted, the application form should be used. If the form is not available when the application is being submitted, Appendix A may be used in lieu of the application form.

Effective dates. The procedures are effective on July 1, 2020, the day Cycle 2 began, and generally apply to applications for an opinion letter submitted solely with respect to Cycle 2 and subsequent cycles. The provisions relating to deadlines for interim and initial amendments are effective for form defects first occurring on or after July 1, 2020, the day Cycle 2 began.

Affected guidance. Rev. Proc. 2013-22 is modified and superseded regarding opinion letter applications submitted for a 403(b) pre-approved plan’s second (and subsequent) cycles. The provisions of Rev. Proc. 2013-22 continue to apply to opinion and advisory letter applications for 403(b) pre-approved plans submitted for Cycle 1. Rev. Proc. 2019-39 is modified.

Source: Rev. Proc. 2021-37.

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